PAYG pension systems with capital mobility
Consider an overlapping generation growth model involving identical countries whose fiscal policy reduces to a pay-as-you-go system with flat rate benefits and uniform payroll tax rate. In autarky, the tax rate is chosen so as to achieve a compromise between intragenerational and intergenerational redistribution. Assume now that there is capital mobility in a setting where national government act more cooperatively. This paper studies how the tax is affected by this combination of capital mobility and non cooperation. It shows that the tax rate increases and henceforth capital accumulation decreases as the number of countries involved increases.
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